Gold Plummets – Beware of Stop Losses

Businessman climbing gold coins stacks

GOLD PLUMMETS

I wrote a series on why the average investor should never use stop losses. Stop losses in theory protect you, but in reality, they are a way to ensure that with every severe drop in the market, stop losses are triggered and make a dramatic temporary loss, a permanent irrecoverable loss. Usually a steep drop is followed by a recovery of some amount. Triggering a stop loss removes this possibility.

Today, GOLD plummeted because of stop losses. A short term drop, precipitated stop losses being triggered across the board, and everyone who had a stop loss protection got killed. Gold also suffered a precipitous drop as a result.

Kitco Article This Morning – Stop Losses Trigger Gold’s Fall
Gold Update: Comex Gold Falls Below $1,500/Oz On Heavy Stop-Loss Selling, Long Liquidation

By Allen Sykora of Kitco News  Friday April 12, 2013 11:20 AM

(Kitco News) – Most-active U.S. gold futures fell below $1,500 an ounce for the first time in nearly two years Friday in a move that traders are describing as largely technical in nature, with sell stops hit as the market slipped first through last week’s longtime lows and then support at the lows that had held since September 2011.

Otherwise, the decline does not appear to be fueled by any major breaking news, observers said. In fact, the slide is coming on a day when U.S. economic data has been soft and equities are on the defensive.

“It’s a liquidation event,” said Frank Lesh, broker and futures analyst with FuturePath Trading. “The market is forcing people out.”Several traders reported that sell stops have been triggered. These are pre-placed orders activated when certain chart points are hit, often to kick traders out of positions to limit losses or book a profit, although market participants can also use stops to establish fresh positions based on the technical picture of a market.

Just after 11 a.m. EDT, gold for June delivery was down $70.30 to $1,494.60 an ounce on the Comex division of the New York Mercantile Exchange. The metal hit a low of $1,491.40  that was the contract’s lowest level since April 2011. May silver was down $1.612 to $26.085 an ounce.

Bottom Line
If you are a pro and trading futures, it is ok to use Stop Losses. Otherwise,beware and avoid.

 

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By Larry Cyna

Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the public markets, has been a founding director of public companies and continues as a strategic consultant to selected clientele. He is and has been a director, a senior officer and on the Advisory Board of a number of TSX and TSXV public companies in the mining, resource, technology and telecommunications sectors, and the Founding Director of two CPC’s with qualifying transactions in mining and minerals. He was an honorary director of the Rotman School of Management MBA IMC program, has completed the Canadian Securities Institute Canadian Securities Course & Institute Conduct and Practices Handbook Course, was a former Manager under contract to an Investment Manager at BMO Nesbitt Burns, a roster mediator under the Ontario Mandatory Mediation Program, Toronto, a member of the Institute of Corporate Directors of Ontario, a member of the Upper Canada Dispute Resolution Group, and the Ontario Bar Association, Alternate Dispute Resolution section. He obtained his designation as a Chartered Accountant in Ontario in 1971 and was the recipient of the Founder’s Prize for academic achievement together with a cash reward. He became a CPA in the State of Illinois, USA in 1999 under IQEX with a grade of 92%. He is a Member of the Institute of Chartered Accountants of Ontario and the Canadian Institute of Chartered Accountants. He holds certificates in Advanced ADR & in Civil Justice in Ontario, Faculty of Law, University of Windsor, certificate in Dispute Resolution from the Ontario Institute of Chartered Accountants. Previous accomplishments are Manager of Cymor Risk Consultants LP specializing in Risk Management Assessment; CEO of Cyna & Associates specializing in mediation and ADR; Founder & Senior Partner of Cyna & Co, Chartered Accountants, a fully licensed and accredited public accountancy firm with international affiliations; and was a partner in a large public accountancy firm. Mr. Cyna is well known in the Canadian Investing community. He is invited to, and attends presentations given by public companies usually 3 or 4 times each week. These presentations are intended by the various hosting companies to present their inside story to sophisticated parties and Investment Managers for the purpose of attracting funding, or of making parties more interested in acquiring shares of those companies. Being a part of this keeps Mr. Cyna deeply involved in the current market and leads to numerous investment opportunities.